Recent Buys - V, KEG.UN, DIR.UN


As you probably know by now, I really like getting paid for doing absolutely nothing. This is why I love dividend income so much. When it comes to increasing our dividend income, there are three contributing factors:

1. New purchases of dividend paying stocks
2. Organic dividend growth
3. DRIP.

Although organic growth and DRIP are important, the new purchases of dividend paying stocks is the key contributor on increasing our forward looking dividend income. This is why we've been particularly busy this year. So far this year we've added the following stocks already:

30 shares of Bank of Nova Scotia (BNS.TO)
71 shares of Inter Pipeline (IPL.TO)
38 shares of Magna International (MG.TO)
87 shares of RioCan REIT (REI.UN)
115 shares of Vanguard Canada All Cap Index ETF (VCN.TO)
91 shares of Telus (T.TO)
20 shares of Canadian Imperial Bank of Commerce (CM.TO)
46 shares of Saputo (SAP.TO)
32 shares of Royal Bank (RY.TO)
123 shares of National Bank (NA.TO)
26 shares of Target Coropration (TGT)
15 shares of Agrium Inc (AGU.TO)
20 shares of Starbucks (SBUX)
40 shares of Brookfield Renewable Energy Partners Ltd (BEP.UN)
100 shares of High Liner Foods (HLF.TO)

All these buys added up to be a little shy of $32,000 without taking the US and CAN exchange rate into consideration.Yes, we've added quite a bit of money into our dividend portfolio, but we're far from being done for this year. At end of 2015 we set a very challenging goal for ourselves - to receive $13,000 in dividend income by end of 2016. Given that we received $10,318.02 in dividend income in 2015, this correlates to an increase of over $2,600, or about 26%. To put this into perspective, to add $2,600 of dividend income without contribution of organic dividend growth and DRIP, at a 3% dividend yield, will require adding about $87,000. Wow that's a lot of money!

While accomplishing this ambitious and challenging goal will be super cool, we want to make sure that we have long term view in mind. Sure, it would be a lot easier to accomplish this goal if we were to chase yield and simply purchase higher yield stocks. But that's not what we want to do. There's a place for high yield dividend stocks in our portfolio but we also want to focus on high dividend growth stocks too. We need to find the right balance. As you can see from our buys in 2016 so far, our stock purchases consisted a mix of low yield, high dividend growth stocks and high yield, low dividend growth stocks. What's the right balance? I don't think I can answer that question as the answer will different for each individual.

With that in mind, we recently purchased the following dividend paying stocks:

16 shares of Visa (V)
100 shares of Keg Royalties (KEG.UN)
159 shares of Dream Industrial REIT (DIR.UN)

Below are some quick analysis and rationale behind our recent buys.


You probably don't see too many dividend growth investors holding Visa in their dividend portfolio. At 0.72% dividend yield, it is simply too low for most dividend growth investors. The reason I like Visa and decided to add it in our portfolio is the strong dividend growth history. Visa has an 8 year dividend growth streak with a 5 year dividend growth rate of 30.7% and a 1 year dividend growth rate of 19%. At a payout ratio of 21.8%, Visa should be able to continue such strong dividend growth for many years to come. Furthermore, Visa has a very wide moat when it comes to its credit/lending business. According to Nilson Report, in 2015 Visa accounted 56% of all global credit card transactions, or $126.1 billion. The closest competition was Master Card at 26% at $59.7 billion. Visa is totally dominating its competitors.

Another reason for liking Visa is the way it generates revenues is very different than how your typical financial stocks like Bank of Nova Scotia or Royal Bank generate their revenues. Owning Visa will allow for some diversification within the financial sector. We will most likely continue adding more Visa shares in the future.


Keg Royalties
We have owned Keg Royalties in our dividend portfolio for a while now and this recent buy simply added to our existing position. For those unfamiliar with The Keg, it is a restaurant chain specializes in high-quality steaks and prime ribs. The first Keg restaurant opened in 1971 and today there are 103 restaurants in the Keg Royalty Pool operating both in Canada and the US. The Royalties fund pays out a monthly distribution of about 6%, which accounts to roughly 82% payout ratio as of Q1 2016. In the latest quarterly results, the gross sales were $146,787,000 from 100 Keg restaurants compared to $146,383,000 reported by the 102 Keg restaurants. Despite having 2 less restaurants, the sales increased by $404,000 or 0.3%, mostly contributed by an increase of 1.1% in same store sales. Thanks to the good quarterly results, the fund has increased its distribution from from $0.0875 per unit to $0.09 per unit, or about 2.9%.

I wasn't considering about buying more KEG.UN shares until our recent visits to local Keg restaurants. During our recent visits, the restaurants were packed. One of the times we were told that we'd need to wait for more than 30 minutes. Because we were using Keg gift cards that I won at work, we decided to wait (luckily because we had Baby T1.0 around, they prioritized us and we got seated within 10 minutes). Looking around at the restaurant entrance, I was shocked to see so many people, ready to spend their money. The Keg menu was slightly on the higher end of the eating out price range for our household but was still affordable compared to some specialized steak houses here in Vancouver. Having said that, a dinner for two and a toddler without any appetizers or drinks and a shared dessert was almost $100 Canadian! I was sure that we were spending on the low end of the spectrum, considering other tables were ordering multiple appetizers and drinks.

I'll be blunt, this purchase is more for income purposes rather than dividend growth. The goal is to use the distribution to either DRIP or purchase other dividend paying stocks.


Dream Industrial REIT
With Vancouver real estate being freaking nuts right now, invest in rental properties is out of question for us. The only way for us to invest in real estates is through REITs. Looking at our REIT holdings in our dividend portfolio, most of them focus in the retail and office spaces. One of the important concept in investing is diversification. While we can diversify through owning stocks in different sectors, it's also possible to diversify within each sector by owning stocks that operates differently within that particular sector. As mentioned earlier, this is why we purchased shares of Visa. Similar concept can be applied with our purchase of DIR.UN. You see, Dream Industrial REIT focuses on owning and managing a diversified, growth-oriented portfolio of light industrial properties located in primary and secondary markets across Canada. The assets that DIR.UN owns and manages are very different than assets that RioCan or Dream Office REITs own and manage. This provides diversification within our REITs dividend portfolio holdings.

Dream Industrial

As of end of Q1 2016, DIR.UN owns and manages 219 light industrial properties totaling approximately 17 million square feet of gross leasable area, with 94.7% property occupation rate and a 4.2 year average lease rate.

Because the way REITs are set up, we cannot calculate the payout ratio by simply dividing the dividend payouts by annual earnings. Instead, we need to go through the financial results and look at the fund's distributions and Fund from Operations (FFO). Below is a quick analysis I did to compare DIR.UN with some Canadian and US REITs based on their Q1 results.


As you can see, DIR.UN's 8.4x Price/FFO ratio is quite reasonable compared to other REITs. DIR.UN's 8.6% dividend yield is much higher than many other REITs. But if you look at the FFO payout ratio, I think DIR.UN's distribution is very reasonable and safe. The fund should be able to continue to pay out its monthly dividend distribution and even increase by a small amount in the future. Looking at DIR.UN's 2015 annual report, I noted that the AFFO payout ratio went from 88.5% in 2014 to 85.1% in 2015, This is a great trend to see. Two thirds of the portfolio is multi-tenant, which offers a significant rental growth potential. DIR.UN has limited direct exposure to Western Canada oil & gas industry with the Alberta portfolio is currently 98% occupied and only 0.9% of total gross leasable area expires in the next two years. These are great numbers to see given the oil & gas industry in Alberta is suffering quite a bit in recent times.

Dream Industrial has managed to provide a 5.5% compounded annual AFFO growth since IPO forecast in Oct 2012. It also increased asset base from $0.7 billion to $1.7 billion

Dream Industrial AFFO

Canadian Industrial Fundamentals

The part I like about the Industrial REIT space is the Canadian industrial fundamentals are very strong with 1.8 billion square feet of total industrial market. Currently Dream Industrial's 17 million square feet of leasable space is a small drop in this gigantic 1.8 billion bucket. I believe that there are great growth potentials in the industrial REIT space.

These recent buys will add $231.44 into our annual dividend income.

Dear readers, what do you think about these recent buys?

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  • Reply
    The Green Swan
    May 20, 2016 at 8:21 am

    Looks like you have done a very nice job of making new contributions to your dividend portfolio and are well on your way to reaching your goal!

    • Reply
      May 20, 2016 at 11:13 am

      Hi The Green Swan,

      Thanks, working hard to reach our goal for this year. 🙂

  • Reply
    Income Surfer (@IncomeSurf)
    May 20, 2016 at 8:22 am

    Great job putting fresh capital to work Tawcan. We hold and are fans of Visa also. While I don't love the price they paid for Visa Europe.....the deal will give them unprecedented scale and be in a better position to set fees. Hope you guys have a great weekend

    • Reply
      May 20, 2016 at 11:14 am

      Hi Bryan,

      Visa is a great long term hold I think. Would have been nice to buy the stock at more of a discount but that's tough to do with a hot stock like Visa.

  • Reply
    May 20, 2016 at 8:50 am

    Wow...your purchases are piling up for the year. Keep up the great work. Interesting purchases this round too. That should increase your forward passive income nicely.

    Best wishes

    • Reply
      May 20, 2016 at 11:14 am

      Hi R2R,

      I was a little surprised how much we've invested already this year. The purchases are definitely piling up.

  • Reply
    May 20, 2016 at 8:55 am

    Good stuff. I own DIR.UN in our TFSA and like their yield so far. It is dripped so I don't really care about how share price fluctuate at this point. I always wanted to buy Visa but it is never being traded cheaply.
    Congrats on adding so many shares. Good job!


    • Reply
      May 20, 2016 at 11:15 am

      Hi BeSmartRich,

      We'll be enrolling in DRIP for DIR.UN as well.

  • Reply
    May 20, 2016 at 9:53 am

    This is fascinating! I am so so so new to the world of investing. At this point, I just stick to the whole stock market so reading about what you are investing in and why is eye opening. I love the idea of dividends but haven't really figured out of to get more of them. Thanks so much for the thoughtful detailed post!

    • Reply
      May 20, 2016 at 11:15 am

      Hi Lena,

      Buying index ETFs is also a great idea, we're focusing more on the index ETFs front this year.

  • Reply
    Investment Hunting
    May 20, 2016 at 10:37 am

    You're really going after it this year. Nice job Tawcan. I like the Visa buy. This company has a lot going for it in the near future. China and Costco should be big winners.

    • Reply
      May 20, 2016 at 11:16 am

      Hi Investment Hunting,

      Hopefully Visa will continue its strong dividend growth. 🙂

  • Reply
    May 20, 2016 at 1:03 pm

    A very nice list of additions and new buys... From Utah list SBUX is appealing for me. I might do some puts on here to enter at a lower level.

    You have made quite some buys already this year. Keep investing and dripping!

    Have a nice weekend!

    • Reply
      May 23, 2016 at 3:10 pm

      Thanks ambertreeleaves, trying to be busy. 🙂

      We may buy more SBUX and V in the future.

  • Reply
    May 20, 2016 at 5:33 pm

    Yes,i am fan of visa,even i hold few of them ,waiting for it lower to add again.

    • Reply
      May 23, 2016 at 3:10 pm

      I'll probably add more Visa shares if the price goes lower.

  • Reply
    May 21, 2016 at 7:15 am

    Love Visa! My best pick of my dividend growth career!

    • Reply
      May 23, 2016 at 3:10 pm

      Thanks, sounds like many people own Visa already.

  • Reply
    Stefan - The Millennial Budget
    May 21, 2016 at 10:47 am

    You are going after these goals hard! I love Visa but waiting for a pullback in the market before I pull the trigger on stocks right now. Keep up the great work! Is your DRIP included in your amount invested or separate?

    • Reply
      May 23, 2016 at 3:11 pm

      I like Visa's business model. I thought the recent pullback was enough for me to purchase some shares. If the price continues to pullback, will probably buy more shares.

      DRIP is not included in my amount invested.

  • Reply
    Financial Slacker
    May 21, 2016 at 4:40 pm

    I really appreciate this post and others like it. I'm pretty heavily invested in a diversified portfolio of ETFs, but I'm looking to migrate a portion into dividend stocks - probaby starting with my large cap allocation.

    It's helpful to see the thinking that you put into your selections.


    • Reply
      May 23, 2016 at 3:11 pm

      Hi Financial Slacker,

      I'm on the other side of the spectrum, trying to get into index ETFs a bit more. I think a mix of both is a great investing strategy.

  • Reply
    Mr.Tako @ Mr. Tako Escapes
    May 21, 2016 at 9:53 pm

    Always been a fan of the Keg restaurants from a customer's point of view. I suppose that should be good for investors as well. Didn't even know they were public.

    Industrial REITs are a good idea, but think of industrial space as a commodity (it mostly is). Prices will see wild swings through the economic cycle. Those with lower debt levels and better properties will survive and potentially thrive.

    I find it interesting that you've added to your Telus position recently. I've been considering selling mine. Customer growth is definitely under pressure, and returns on capital have been dropping the last few years. High debt levels are also a concern. Why did you add more this year?

    • Reply
      May 23, 2016 at 3:15 pm

      Yeah Keg has some pretty good food. Glad to hear from another happy customer. Yes industrial REITs is like a commodity, price will see wild swings through the economic cycle, that's why I keep a close eye on the debt levels. Our next focus is going to be apartment and housing REITs.

      I added more to our Telus position mostly to diversify our telecommunication sector. We already hold large amount of Rogers and Bell. Yes customer growth for Telus is under pressure and the returns on capital have been dropping the last few years. However, I see Telus expanding into television and other home services as a way to increase growth. On the other hand, as we get more and more hooked on cellphones, Telus will for sure bring in some good profits as a result. I see telecommunication sector to become like utilities sector in the near future.

  • Reply
    May 23, 2016 at 7:41 pm

    Congrats on the progress and buys Tawcan, very impressive tenacity you are showing, going after your goals.

    I like Visa for how you described it, there should be a lot more growth as society turns more cashless. The other 2 are interesting, I hope they work out for you 🙂

    If only you could have got Visa several years ago. Hindsight is a wonderful and teasing thing.


    • Reply
      May 24, 2016 at 10:36 am

      Hi Tristan,

      Thanks, I like Visa long term potential. The other two I'll need to monitor them closely.

  • Reply
    Team CF
    May 24, 2016 at 4:58 am

    Any particular reason why you choose DIR.UN over AAR.UN? The latter seems to have "better" economical data and has more shares (and are traded more often) so the stock is less susceptible to wild price swings.

    Curious to know, as we are leaning towards AAR.UN.

    • Reply
      May 24, 2016 at 10:37 am

      Hi Team CF,

      We already own AAR.UN that's why we picked DIR.UN. Probably will add more AAR.UN shares in the future.

      • Reply
        Team CF
        May 25, 2016 at 7:46 am

        Oops, missed that. In that case, good move!

  • Reply
    Jack Luo
    May 24, 2016 at 8:31 am

    I had to choose between Dream Industrial REIT and Cominar REIT a while ago, and I decided to go with Cominar because of it's significantly lower P/E ratio at the time. I really like REIT these days. With REIT getting it's own sector, I think it will help us make better buying decisions going forward.

    Not a big fan of the Keg, and I don't see its "premium" business model being sustainability in a long-term, simply due to intensive competition in the restaurant industry.

    • Reply
      May 24, 2016 at 10:41 am

      Hi Jack,

      Cominar is a good pick but we wanted to have something more targeted toward industrial. I quite like REITs given it's pretty challenging to invest in the Vancouver real estate market. Will probably focus on apartment/housing REITs for our next REIT purchase.

      Which restaurants would you say are direct competitors of the Keg? I don't see Milestones, Cactus Club, or Earls on the same level as the Keg.

      • Reply
        Jack Luo
        May 24, 2016 at 2:43 pm

        Hi Tawcan,

        Cominar has been kind to me since I bought it earlier this year. the 8.5% dividend yield and the potential growth is very promising and sustainable. However, the downfall of Sears might take this Quebec based company with it, Cominar is running on a pretty tie cash flow right now.

        I also have Milestone Apartments REIT on my portfolio, which invests in and operates multifamily garden-style residential properties, but only in the Southeast and Southwest of United States. However, I've been following this company for a while now, and decided to pull the trigger a couple months ago.

        There are not many "direct" competitors are on the same scale as the Keg, however, I see many alternatives (as you mentioned, Milestones, Cactus Club (<- love their bathroom!) and Earls), as well other independent high-end local restaurants (just walk down Alberni St. in Downtown Vancouver, or visit Yale Town. In additional, it seems a like a trend that big/small name Chefs are opening various restaurants across the globe these days, especially in the Pacific West Coast. (Next time you're in Seattle, pay a visit to one of Tom Douglas's restaurants, each one is unique to its own style while being consistent with Chef Douglas's characteristics.

        Anyways, simply put, there are endless choices these days for people to spend a $100 on a nice dining experience. With millennials trending heavily on local and indie preferences, I find it difficult to see the Keg sustaining it's growth. That is just my thoughts on the Keg, I personally don't think their product or service is unique enough for me go back, I even re-gifted their gift card when I won it at work last Christmas. That being said, investing in it's stock might be a different story.

        • Reply
          May 24, 2016 at 2:55 pm

          I haven't been looking too closely to Cominar but will need to moving forward. Not familiar with Milestone Apartments REIT, will have to take a look, thanks for pointing it out. 🙂

          Yes there are many alternatives to The Keg. Restaurant business is a tough business to be in, that's why we'll continue to monitor the Keg closely. 🙂

  • Reply
    Dividend Family Guy
    May 24, 2016 at 2:06 pm

    From what you said T they all look like good buys. Waiting lines at restaurants is always a good thing if your an investor. Not so good for those like us with kids. I usually have 1 hour at a store/restaurant before all hell breaks loose. 🙂

    • Reply
      May 24, 2016 at 2:53 pm

      Thanks DFG.

  • Reply
    June 1, 2016 at 5:47 pm

    Really like the purchases Tawcan I am a fellow shareholder in The Keg. Keep up the good work 🙂

    • Reply
      June 2, 2016 at 10:56 am


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